What is a Blank Check Company?

A company that has no defined business operations or that is at an early stage in terms of business development is a blank check company. A blank check company is a company with no specific business plans, such a company thrive on the intention of acquiring another business or merging with another entity. The Securities and Exchange Commission recognize blank check companies, these companies are bound by Rule 419 of the SEC and are unattractive to active investors. Basically, blank check companies engage in speculative investments which is why the SEC penny stocks or microcap stocks.

Back To: BUSINESS LAW

What Qualifies as a Blank Check Company?

Due to the nature of blank check companies, the Securities and Exchange Commision in the United States have strict rules for these companies. Blank check companies have no concrete or established business plans, these companies have no clear directions with regards to business operations. Blank check companies are speculative in nature, they are either hoping to acquire or merge with another business. 

The SEC has specific requirements and regulations that bind blank check companies. Generally, blank check companies are not eligible for specific exemptions that other businesses can enjoy under Regulation D of the Securities Act of 1933. According to the SEC, a blank check company cannot use Rule 504 or engage in securities offerings that is up to $1 million. There are types of blank check companies that the SEC recognize. A type of blank check company that can raise funds through an initial public offering (IPO) can be called a special purpose acquisition company (SPAC). The money raised is used to fund merger or acquisition that the company intends to do, the time frame for such merger or acquisition is within 24 months.

Back to: Business Transactions